US Dollar Forecast: Will Fed’s Cautious Stance Weaken USD? – GBP/USD, EUR/USD

Market Overview

The US Dollar Index (DXY), which tracks the USD against six major currencies, remains weak, hovering near 103.64 after touching an intraday low of 102.99. The dollar’s decline is primarily driven by falling US Treasury yields, with the 2-year yield at 3.97% and the 10-year yield at 4.24%.

Despite hawkish remarks from Fed Chair Jerome Powell, the dollar struggles amid growing expectations of rate cuts and geopolitical uncertainty, weighing on investor sentiment.

Fed Holds Rates Steady, Signals Two Cuts in 2025

The Federal Reserve kept its benchmark interest rate at 4.25%-4.50% and reiterated its forecast for two quarter-point rate cuts in 2025. Policymakers acknowledged slowing economic growth and persistent inflation, fueling speculation about monetary easing. Powell emphasized that while the labor market remains strong, inflation remains elevated, requiring careful monitoring.

Market participants are pricing in 66 basis points of easing this year, with a July rate cut fully expected, according to LSEG data. Powell’s measured stance suggests the Fed is waiting for clearer economic signals before adjusting policy, adding to investor uncertainty.

The prospect of rate cuts weakens the dollar, as lower yields reduce its appeal, prompting capital flows into alternative assets.

Geopolitical Tensions and Policy Moves Impact the Dollar

Geopolitical developments also continue to influence USD performance. Former President Donald Trump and Russian President Vladimir Putin agreed to a 30-day pause on strikes targeting Ukraine’s energy infrastructure, but Putin rejected a broader ceasefire, signaling continued tensions.

Meanwhile, Trump reaffirmed his plan to impose new tariffs on April 2, targeting steel, aluminum, and autos without exemptions. Additionally, his proposal to increase fees on China-linked vessels entering US ports is already disrupting the coal and agriculture sectors, adding to economic uncertainty.

US Dollar Index (DXY) – Technical Analysis

The Dollar Index (DXY) is trading around 103.64, edging slightly lower as traders assess the Federal Reserve’s policy outlook. Despite the dip, DXY remains above its pivot point at 103.20, suggesting buyers are still in control for now. The 50-day EMA at 103.49 is acting as near-term support, reinforcing the index’s consolidation phase.

Immediate resistance stands at 104.10, with a breakout potentially pushing DXY toward 104.58. On the downside, a move below 103.20 could trigger sharper selling pressure, exposing 102.69 as the next key support.

Traders should watch for a break above 104.10 for renewed bullish momentum or a slip below 103.20 for a deeper correction.

GBP/USD Technical Analysis

The GBP/USD pair is trading around 1.2972, holding steady as traders assess market sentiment ahead of key economic data. The pivot point at 1.2975 is a critical level—staying below it keeps the pair vulnerable to downside risks, with immediate support at 1.2914 and a deeper target at 1.2868. The 50-day EMA at 1.2974 is offering dynamic resistance, keeping gains in check.

If GBP/USD clears 1.2975, buyers may push toward 1.3011, with further resistance at 1.3056. However, as long as the pair remains below the pivot, the bias leans bearish. The 200-day EMA at 1.2859 suggests broader support, limiting sharp declines. A decisive break above 1.2975 could shift momentum, while failure to hold 1.2914 may accelerate selling pressure.

EUR/USD Technical Forecast

The EUR/USD pair is treading water near 1.0879, struggling to gain momentum as traders weigh Federal Reserve policy expectations against a resilient euro. The pivot point at 1.0899 serves as a critical inflection zone—staying below this level keeps the bearish bias intact, with immediate support at 1.0830 and a deeper downside target at 1.0776.

The 50-day EMA at 1.0900 acts as dynamic resistance, aligning with short-term selling pressure.

If EUR/USD breaks above 1.0899, buyers could push the pair toward 1.0954, with further upside potential targeting 1.1015. However, as long as the pair remains under the pivot, downside risks persist. Traders should watch for a decisive break above 1.0900 to confirm bullish momentum, while failure to hold 1.0830 may accelerate selling pressure.